The Big Picture Vincent Boland: Bitcoin rises from the dead …and it stinks to high heaven Crypto universe is shrouded in mystification, boosterism and investor credulousness
Vincent Boland 01:00 The price of bitcoin hit a record level last week, trading at $69,200 per “coin”.Picture: Bloomberg The ranks of the undead have a new entrant – bitcoin.More than a year after we were told everything about the cryptocurrency world was about to change, and after a decade of hype, price bubbles and wanton capital misallocation, the crypto world has come full circle.
Back from the crypt, you could say.
The price of bitcoin – the most common and highly priced of the crypto currencies – hit a record level last week, trading at $69,200 per “coin” and surpassing the previous record from early 2021.The difference this time around is that crypto’s boosters claim there are two new underlying factors that support the price surge and its continued rise from here.
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One was the introduction of exchange-traded funds invested in crypto assets managed by mainstream financial houses such as Fidelity Investments.These funds are seen as Wall Street’s endorsement of cryptocurrencies as mainstream assets, and they are proving popular.Multiple reports last week said that about $7.5 billion has been invested in the funds since they were approved for sale by regulators at the US Securities and Exchange Commission on January 10.
The other factor supporting the price rise is what is being called the “halving” of bitcoin, which is apparently going to happen later this year.
I do not claim to understand what is going on, but coins will become more scarce as investors “mine” them, and scarcity is always a factor in driving up prices.The event is reportedly embedded in the technology of the bitcoin universe.Don’t ask.
When I first wrote about crypto I described it as “an asset that is little more than a computer code invented by somebody or something named Satoshi Nakamoto, who may or may not be an actual person or organisation, may or may not be Japanese, and may or may not exist”.That is still my view, and while I am happy to be proven wrong – maybe crypto really is the future of money – the burden of proof still lies with crypto’s boosters.
Here are some problems with the return of crypto.
First, the endorsement by Wall Street sounds like the sort of thing the crypto world’s insurgents used to say they did not need or want, because crypto was the future and Wall Street was the enemy.Has the insurgency come and gone already, or is it just postponed?
Sam Bankman-Fried was found guilty of wire fraud.Picture: Getty Then, on January 9, the day before the official approval of crypto ETFs, the SEC’s account on X was hacked to announce that approval had been given, and the price of bitcoin soared before tumbling.That was 24 hours before actual approval was given.
In other words, the legitimisation of cryptocurrencies as a regulated asset was preceded by an illegitimate act.Something smelled very wrong about that episode then, and it still does.
Then there is Sam Bankman-Fried.He was the founder of FTX, a crypto trading platform that collapsed in late 2022.Last year he was found guilty of wire fraud, conspiracy and money laundering, and is to be sentenced some time this month.He was supposed to be the maths genius who was the respectable face of the crypto world.
Now he faces a lengthy spell behind bars.
Then there is the cost of “mining”.This essential part of the process of buying bitcoin is estimated to cost up to half the value of each coin.It also uses enormous amounts of energy.
That has long been crypto’s dirty little secret.
I do not deny that the crypto universe is real.
According to the FT ’s “digital assets dashboard”, the value of that universe one day last week was $2.6 trillion, roughly the combined value of the companies in the FTSE 100 index.Daily trading volume on the day in question was $65 billion, which is much higher than daily trading values for the FTSE 100.
Yet the crypto universe is shrouded in mystification, boosterism and investor credulousness.It is still not clear that these assets possess any underlying value.
The price at which bitcoin trades is therefore guesswork.The move by the SEC to begin regulating bitcoin may be the beginning of a new phase in the evolution of cryptocurrencies.In any case, price is not value.Bitcoin at $69,000 may or may not offer value, but it certainly offers the illusion of value.